It was set to be the biggest acquisition in the history of the semiconductor industry, but after 18 months of regulatory wrangling, Nvidia’s planned $40bn takeover of British chip design giant Arm has collapsed.
Following weeks of speculation that the deal was on its last legs, Arm’s current parent company, Japanese tech conglomerate SoftBank, confirmed negotiations with Nvidia had come to an end. “Nvidia and SoftBank Group have agreed to terminate the agreement because of significant regulatory challenges preventing the consummation of the Transaction, despite good faith efforts by the parties,” the company said in a statement released today, Tuesday February 8.
Nvidia’s $40bn take-over of Arm has collapsed (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images)
Arm Nvidia news: why did the takeover collapse?
Cambridge-based Arm is a fabless chip maker, meaning it provides designs which its clients manufacture themselves. Its IP is behind the the vast majority of the high performance, low power chips which have powered the mobile revolution, including those found in the iPhone and other leading smartphones. Arm designs are now increasingly also being used in servers and personal computers, an area traditionally dominated by the rival x86 architecture developed by Intel.
Founded in 1990, Arm made its name as the “Switzerland of chip design”, licensing semiconductor IP to the biggest names in tech, such as Apple, Sony and Samsung without favouring any particular vendor. Since news of the Arm Nvidia tie-up broke, fears have been raised by many in the industry that the takeover could bring the open licensing model to an end, handing a considerable advantage to Nvidia. Indeed, the world’s biggest tech companies, including Microsoft and Google, raised objections to the deal, and regulatory probes were opened in key markets around the world, ultimately causing the deal to collapse.
Nvidia has paid $1.25bn to SoftBank, described as a non-refundable deposit by the companies, as a result of the deal collapsing. The news has also triggered a boardroom shake-up at Arm, with Rene Haas taking over as CEO from Simon Segars, who has served as CEO since taking over from Warren East in 2013, and will also step down from Arm’s board of directors, ending a 30-year association with the company.
Haas, who has headed up the company’s IP projects group since 2017, said: “With the uncertainty of the past several months behind us, we are emboldened by a renewed energy to move into a growth strategy and change lives around the world.”
The future of Arm: an IPO in 2023
SoftBank says it plans to relist Arm on the public markets “within the fiscal year ending March 31 2023”, with the FT reporting it favours a listing on the New York Stock Exchange. There is likely to be considerable pressure for the company to list in London instead given Arm’s strategic importance to the UK. Speaking to Tech Monitor in May, Arm co-founder Hermann Hauser said a float backed by the UK government (the UK would invest £1bn and take a “golden share” in Arm, protecting it as a national asset) would be a “positive outcome” for the company.
An IPO is the best option for SoftBank, as “finding another buyer would be difficult”, Linley Gwennap, semiconductor industry analyst and president of the Linley Group told Tech Monitor in December. “The Nvidia experience shows that a vertical merger will be difficult to approve, and no other IP supplier is large enough to acquire Arm,” he says. “The best option would be to relist it, but that could require some time to clean up the financials to make it more attractive (profitable) for public markets.”
Here Tech Monitor outlines the key pieces of Arm Nvidia news that saw the deal collapse
Arm Nvidia deal off: news breaks of takeover collapse
February 8 2021: Nvidia and SoftBank concede defeat in their bid to complete the takeover, releasing a statement explaining that “significant regulatory challenges” prevented “the consummation of the transaction,
despite good faith efforts by the parties.” SoftBank also confirms plans to relist Arm on the public markets in the next 12 months.
Nvidia poised to abandon Arm acquisition?
January 25 2021: Nvidia appears ready to abandon its take-over of Arm. The company has told partners it does not expect the deal to close, according to people familiar with the matter who spoke to Bloomberg.
SoftBank, meanwhile, is looking at relisting Arm on the stock market Bloomberg says, despite having poured cold water on this idea just weeks ago. In response to the report, both companies expressed their continued hopes that the transaction can be completed, with Nvidia spokesman Bob Sherbin stating: “We continue to hold the views expressed in detail in our latest regulatory filings – that this transaction provides an opportunity to accelerate Arm and boost competition and innovation.”
Arm and Nvidia hit back at critics
January 11 2022: With opposition to the deal on all sides, Arm and Nvidia took the opportunity to hit back at their many critics in a submission to the UK CMA’s investigation into the deal. The companies denied they will change the Arm licensing model or forego any of the British company’s neutrality after the deal goes through. “Trying to foreclose Arm licensees would immediately reduce Arm’s licensing revenue, immediately damaging Nvidia’s investment,” the submission says. “No economically rational, publicly traded entity would embrace such a self-defeating strategy.”
They also took the opportunity to dismiss the idea that Arm could be relisted as a public company, saying proponents of this idea “equate Arm’s popularity with a high market valuation and success, but the public markets are unsentimental.” It added: “The capital markets demand profitability and performance,” and said Arm would have to make significant changes and cut costs were it to IPO to appease investors.
European Union pauses Arm investigation
December 6 2021: The European Union decided to hit pause on its investigation into the Arm-Nvidia takeover. The closing date for submissions supporting or opposing the takeover was initially set for November 25, but the European Commission said it wants more time to gather information. Such delays in antitrust investigations have become common during the Covid-19 pandemic as companies deal with staff shortages, Reuters reported.
US FTC delivers blow to Nvidia’s ambitions
December 2 2021: In the most significant regulatory intervention to date, the US FTC announced that, following its investigation, it was suing to block the takeover.
“Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets,” said FTC Bureau of Competition director Holly Vedova. “This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.”
An administrative trial will now take place where an administrative law judge will consider the merits of the takeover and issue a final decision. This is scheduled to start on August 9 2022, meaning Nvidia’s initial 18-month timeline for completion of the deal will be extended by at least several months.
UK moves a step closer to blocking Arm deal
November 16 2021: The UK’s probe into the Arm-Nvidia deal moved on to what is known as a “Phase 2” investigation, new DCMS secretary Nadine Dorries announced.
DCMS secretary Nadine Dorries will make the final decision on whether the UK blocks the Arm-Nvidia deal. (Photo by Dan Kitwood/Getty Images)
The 24-week investigation will be carried out by the Competition and Markets Authority (CMA), which will then deliver a report to Dorries outlining the impact the deal will have regarding antitrust and national security. It could recommend that the takeover be blocked, with the final decision then resting with the DCMS secretary.
European Union competition investigation opens
October 27 2021: Given its ambition to grow Europe’s domestic semiconductor capabilities, it was inevitable the European Union would also take a close interest in Arm’s future.
The news the Arm Nvidia deal would be investigated was announced in October, with the EU citing fears about the damage it could do to competition in the market. European Commissioner Margrethe Vestager said: “While Arm and Nvidia do not directly compete, Arm’s IP is an important input in products competing with those of Nvidia, for example in data centres, automotive and in Internet of Things. Our analysis shows that the acquisition of Arm by Nvidia could lead to restricted or degraded access to Arm’s IP, with distortive effects in many markets where semiconductors are used.”
The commission’s investigation would aim to “ensure that companies active in Europe continue having effective access to the technology that is necessary to produce state-of-the-art semiconductor products at competitive prices,” Vestager added.
Cambridge-1 supercomputer launches
July 8 2021: Despite continuing uncertainty over the Arm takeover, Nvidia launched the promised Cambridge-1 supercomputer, a machine offering peak performance of 9,682 TFlop/s. This made it the 41st most powerful supercomputer in the world.
The new Cambridge-1 supercomputer. (Photo courtesy NVIDIA)
The machine will primarily be used by the life sciences sector to discover and refine new drugs. Launch partners for the system include pharmaceutical firm AstraZeneca, King’s College London and fast-growing biotech scale-up Oxford Nanopore, all of which had been using Cambridge-1 as part of their work.
IPO a no-go says Arm CEO
July 2 2021: With regulators circling, many chip industry insiders started to speculate that SoftBank would pull the plug on the deal with Nvidia and instead re-list Arm on the public markets. However, Arm CEO Simon Segars poured cold water on this idea.
In a blog post on the company site, Segars said: “The combination of Arm and Nvidia is a better outcome than an IPO. The level of investment that will be needed to lead in AI will be unprecedented. We’ve been down this road before when we predicted a major market shift in 2016. We knew that we needed to invest heavily in our products, talent, and technology to take advantage of the opportunities ahead. The initial investments came when SoftBank acquired Arm; it enabled us to build new technologies that expanded our reach into data centres, the automotive and networking industries, all while retaining our leadership in mobile.”
He added: “Now is the time for us to take our scale to the next level to address the technology challenges ahead. We contemplated an IPO but determined that the pressure to deliver short-term revenue growth and profitability would suffocate our ability to invest, expand, move fast and innovate.”
Nvidia requests Chinese investigation
June 8 2021: China is one of Arm’s largest markets, so getting its approval for the deal will be key to its completion. The Financial Times reported that Nvidia had written to Chinese antitrust authorities requesting they review and green light the takeover.
Chinese chipmakers rely heavily on Arm designs, and the FT reported leading manufacturers such as SMIC and Hi Silicon oppose the takeover because of the increased control the US would have over these designs. Chinese lawyers familiar with the antitrust review process said it could take up to 18 months.
UK launches formal take-over probe
April 20 2021: To no one’s surprise, the CMA announced a formal investigation into the deal on “national security grounds”. A government statement said then-Secretary of State at the department for culture, media and sport (DCMS), Oliver Dowden, had taken the decision after considering “advice received from officials across the investment security community”.
The investigation into the Nvidia Arm takeover opened immediately, and would run until July 30.
Tech giants raise objections
February 12 2021: Despite repeated denials from Nvidia that Arm’s neutral status would be impacted by the takeover (“We love the business model. It will stay open and fair and we’ll offer even more IP,” said CEO Huang in response to critics), other tech firms seemed less than convinced.
As the US Federal Trade Commission (FTC) opened an investigation into the deal, Bloomberg reported that Google and Microsoft, along with chipmaker Qualcomm, had all contacted the FTC to object to the deal on the grounds that it would harm competition in the sector.
UK government scrutinises impact on Arm’s neutrality
January 8 2021: The UK government was first regulator to react to the Arm Nvidia news through the Competitions and Markets Authority, which invited third parties to comment on the impact of the deal on the UK chip market. The CMA said it planned to look at whether Arm would have “an incentive to withdraw, raise prices or reduce the quality of its IP licensing services to NVIDIA’s rivals” if the takeover went through.
“We will work closely with other competition authorities around the world to carefully consider the impact of the deal and ensure that it doesn’t ultimately result in consumers facing more expensive or lower quality products,” said the CMA’s chief executive Andrea Coscelli.
Arm Nvidia news: planned $40bn acquisition announced
September 16 2020: After several weeks of speculation, Nvidia revealed its plan to purchase Arm from SoftBank for $40bn. “Uniting Nvidia’s AI computing capabilities with the vast ecosystem of Arm’s CPU, we can advance computing from the cloud, smartphones, PCs, self-driving cars and robotics, to edge IoT, and expand AI computing to every corner of the globe,” said Nvidia CEO Jensen Huang.
Perhaps anticipating opposition to the deal, Huang threw in a couple of sweeteners to try and woo the UK government; a new supercomputer, Cambridge-1, to be built and based in Britain to support life science research, and a new AI research centre to be built in Cambridge, near Arm’s headquarters.
Huang added that he expected the takeover to take up to 18 months to complete.
